LEGAL UPDATE RELATING TO FINANCE AND CREDIT (MONTHLY LEGAL UPDATE – 10/2021)
v Name of legal document: Circular No. 11/2021/TT-NHNN dated July 30, 2021 of the State Bank of Vietnam prescribing classification of assets, amounts and methods of setting up risk provisions and use of provisions for control and management of risks arising from operations of credit institutions and foreign bank branches (referred to as the “Circular No. 11/2021/TT-NHNN”).v Effective date: 01/10/2021.
The content should be noted:
Stipulating on specific provision amounts
1. The borrower-specific provision amount is calculated according to
the following formula:
Where:
- R: Total borrower-specific provision amount;
-
Ri refers to the amount of provision for the outstanding balance of the
loan i. Ri is calculated according to the following formula:
Ri = (Ai - Ci) x r
Where:
Ai: The outstanding principal i.
Ci: Deductible value of the security property, financial lease
assets, negotiable instruments, other securities used in discounting and resale
of Government bonds (hereinafter referred to as collateral) of the debt i.
r: Provisioning rates specific to groups prescribed in clause 2 of this
Article.
Where Ci > Ai, Ri is calculated as 0 (zero).
2. Provisioning rates specific to debt groups are as follows:
a) Group 1: 0%;
b) Group 2: 5%;
c) Group 3: 20%;
d) Group 4: 50%;
dd) Group 5: 100%.
3. The collateral or security used as a deduction for calculation of
the specific provision amount (R) specified in Clause 1 of this Article must
satisfy the following conditions:
a) Credit institutions, foreign bank branches may dispose of security
or collateral under guarantee contracts and in accordance with law when
borrowers fail to perform their agreed obligations;
b) The expected period of disposition of collateral or security
property is not more than 01 (one) year if it is not a real property, and not
more than 02 (two) years if it is a real property, and starts from the date on
which credit institutions, foreign bank branches have the right to dispose of
collateral or security;
c) Collateral or security must conform to laws on secured transactions
and other relevant laws;
d) In case where the security or collateral fails to satisfy the
conditions specified at point a, b and c of this clause, the deductible value
of that security or collateral must be deemed 0 (zero).
4. The deductible value of security property or collateral is
determined by multiplying the value of security property or collateral
specified in clause 5 of this Article by the deduction rate for each type of
security or collateral as provided in Clause 6 of this Article.
Credit institutions, foreign bank branches shall, of their own accord,
determine the deduction rate for each type of security or collateral on the
basis of the assessment of recoverability when disposing of that security or
collateral provided that rate does not exceed the maximum deduction rate
applied to specific types of collateral or security property in accordance with
clause 6 of this Article.
5. Value of collateral or security property used as a basis to
calculate the deduction during the process of setting up a risk provision shall
be determined as follows:
a) Gold bars: Their value is determined at the buying price at the head
office of an enterprise or credit institution that owns the gold bar brand at
the end of the trading day prior to the specific provisioning date;
b) Listed securities (including stocks, fund certificates, derivatives,
covered warrants that are already listed): Their value is determined at the
closing price quoted on the latest trading day prior to the specific
provisioning date. In case where securities already listed on the stock
exchange are not traded in 30 (thirty) days before the provisioning date, or
are delisted or suspended from trades or cease being traded on the provisioning
date, credit institutions, foreign bank branches shall value the collateral or
security property in accordance with point e of this clause;
c) Stocks registered for trades on Upcom: Their value is determined at
the reference price at the latest trading day promptly before the provisioning
date announced by the Stock Exchange. In case where securities already listed
on Upcom are not traded in 30 (thirty) days before the specific provisioning
date, or are delisted or suspended from trades or cease being traded on the
provisioning date, credit institutions, foreign bank branches shall value the
collateral or security property in accordance with point e of this clause;
d) Government bonds listed on Stock Exchanges: Their value is
determined at the average price by averaging trading prices in the
firm-commitment offering session in accordance with the Government's
regulations on issuance, registration, depository, listing and trading of
Government debt instruments on the stock market; guiding documents of the
Ministry of Finance and other amending, supplementing documents or replacement
ones (if any). In case where there is no trading price in the above-mentioned
firm-commitment offering session, the bond price applied to calculation of the
deduction is the average of the trading prices on the secondary market within
the last 10 (ten) working days till the date of setting up of the provision for
risk. In case where no trade takes place within the last 10 (ten) working days
till the date of setting of the provision for risk, credit institutions,
foreign bank branches shall use the par value of the collateral or security
property;
dd) Municipal bonds, government-guaranteed bonds and corporate bonds
(including credit institutions) listed and registered for trades: Their value
is determined at the price defined by averaging trading prices on the secondary
market within the last 10 (ten) working days before the provisioning date
according to the announcement of the Stock Exchange. In case where no trade
takes place within the last 10 (ten) working days till the specified
provisioning date, credit institutions, foreign bank branches shall use the par
value of the collateral or security property;
e) Securities not listed on the Stock Exchanges, promissory notes,
bills, certificates of deposit issued by enterprises (including credit
institutions, foreign bank branches): Their par value is used.
In case where, on the specific provisioning date, the equity value is
lower than the actual investment capital value of the owners at the issuing
organization, the value of collateral or security property shall be determined
by
Multiplying the par value of stocks or other securities multiplied by
(x) the equity of the issuing organization and then divided by (:) the actual
investment capital of owners at the issuing organization.
Where: The actual investment capital of the owners at the issuing
organization and the equity of the issuing organization are determined on the
latest balance sheet prior to the specific provisioning date in accordance with
regulations of the Ministry of Finance, providing instructions about the
corporate accounting regime.
In case where the equity of the issuing organization is negative, the
value of collateral or security property used for deduction (Ci) must be deemed
zero (zero);
g) Financially leased assets: Their value uses the value determined
according to point h of this clause, or the value of the financially leased
asset remaining over lease periods is calculated according to the formula:
Value of financially leased assets divided by (:) the lease period
agreed upon under the contract multiplied by (x) the remaining lease term under
the contract;
h) The value of collateral or security property used as deduction for
calculation of the specific provision for movable assets, real property and
other types of security or collateral, except for the assets specified at point
a, b, c, d, dd and e of this clause is calculated as follows:
(i) Credit institutions, foreign bank branches must hire legally
licensed valuing organizations to value collateral or security property used as
deduction for calculation of the specific amount of provision at the end of the
financial year in the following cases:
Collateral or security property valued by credit institutions, foreign
bank branches at VND 50 billion or more is provided to secure debts of
borrowers who are related to credit institutions, foreign bank branches and
other persons subject to restrictions on credit extension as prescribed in
Article 127 of the Law on Credit Institutions (amended and supplemented);
collateral or security property is valued by credit institutions or foreign
bank branches at VND 200 billion or more.
Results of valuation of collateral or security property issued by the
legally licensed valuing organization are used by credit institutions, foreign
bank branches for valuation of collateral or security property used as
deduction for calculation of the specific amount of provision.
In case the licensed valuing organization is not capable of valuing, or
no other licensed valuing organization values collateral or security property,
credit institutions, foreign bank branches shall use the valuation results
according to the internal regulations specified at point h of clause 2 of
Article 6 herein. If there is no written document on the valuation of the
collateral or security property from the valuing organization, and the value of
the collateral or security property cannot be determined according to internal
rules and regulations, the value of the collateral or security property used as
deduction must be deemed 0 (zero);
(ii) Except for the case specified at point h(i) of this clause, credit
institutions, foreign bank branches may value the collateral or security
property as deduction when calculating the specific amount of provision
according to internal rules and regulations laid down at point h of clause 2 of
Article 6 in this Circular.
6. Credit institutions, foreign bank branches shall determine the
specific deduction rate of each type of collateral or security property
according to the principle that the lower the liquidity of the collateral or
security property, and the greater the price fluctuation, then the lower the
collateral deduction rate. In this principle, the maximum deduction rate of the
collateral or security property is calculated as follows:
a) Borrower's deposit balance, certificate of deposit in Vietnam Dong
at the lending credit institution, foreign bank branch: 100%;
b) Government bonds, gold bars in accordance with law on gold trading
activities; borrower's deposit balance, certificate of deposit in foreign
currency at the lending credit institution, foreign bank branch: 95%;
c) Municipal bonds, Government-guaranteed bonds; negotiable
instruments, promissory notes, bills, bonds issued by the lending credit
institutions; balance of deposits, certificates of deposit, promissory notes,
bills issued by other credit institutions, foreign bank branches:
- The time left to maturity of less than 1 year: 95%;
- The time left to maturity of 1 year - 5 years: 85%;
- The time left to maturity of more than 5 year: 80%.
d) Securities issued by other credit institutions and listed on the
Stock Exchanges: 70%;
dd) Securities issued by enterprises (except credit institutions) and
listed on the Stock Exchanges: 65%;
e) Securities that have not yet been listed on the Stock Exchanges,
valuable papers, except those specified at point c of this Clause, issued by
other credit institutions that have registered for listing securities on the
Stock Exchanges: 50%;
Securities that have not yet been listed on the Stock Exchanges,
security instruments, except those specified at point c of this clause, issued
by other credit institutions that do not register for listing their securities
on the Stock Exchanges: 30%;
g) Securities that have not yet been listed on the Stock Exchanges,
security instruments issued by enterprises that register for listing their
securities on the Stock Exchanges: 30%;
Securities that have not yet been listed on the Stock Exchanges,
security instruments issued by enterprises that do not register for listing
their securities on the Stock Exchanges: 10%;
h) Real property: 50%;
i) Others: 30%.
7. If any credit institution is in the process of execution of the plan
for restructuring, amalgamation and merger under the proposal for restructuring
of credit institutions associated with dealing with bad debts that is approved
by the Prime Minister, and have financial difficulties, they should report to
SBV to seek its approval decision on setting up of risk provisions; In case
where the amount of provision for risk is larger than the difference between
income and expenditure from the annual business results (excluding the amount
set aside in advance for provision for risk within the year), the minimum
amount of provision for risk shall be equal to the difference between revenue
and expenditure and the credit institution must monitor the amount set aside as
the provision for risk in full in accordance with this Circular.”
v Name of legal document: Circular No. 12/2021/TT-NHNN issued on 30/07/2021 by the State Bank of Vietnam prescribing credit institutions and foreign bank branches’ trading of promissory notes, treasury bills, deposit certificates and bonds domestically issued by other credit institutions and foreign bank branches (referred to as the “Circular No. 12/2021/TT-NHNN”).v Effective date: 27/10/2021.
Some contents should be noted:
·
Firstly, regulating on
rules for trading of financial instruments.
Specifically, Article 3 Circular
No. 12/2021/TT-NHNN stipulates: “Article 3. Rules for trading of financial
instruments
1. Credit institutions/FBBs are allowed to carry out the trading
of financial instruments according to the contents about trading of corporate
bonds and/or other financial instruments specified in their licenses issued by
SBV.
2. Buyers and sellers shall assume legal responsibility for their
compliance with regulations herein and relevant laws when carrying out trading
of financial instruments.
3. VND (Vietnamese Dong) shall be the currency used in trading of
financial instruments.
4. The financial instrument to be purchased or sold is under the
lawful ownership of the seller and is not matured; the seller undertakes that
the financial instrument is not in any disputes, is eligible for trading as
prescribed by law, and is not undergoing any discounting or rediscounting.
5. Credit institutions/FBBs shall carry out the trading of bonds in
accordance with the Law on Credit Institutions, the Law on Securities,
Government’s Decrees on issuance of corporate bonds, legislative documents
providing guidance on the Law on Securities, relevant laws and this Circular.
6. Credit institutions/FBBs shall only purchase promissory notes,
treasury bills and deposit certificates whose remaining term to maturity is
less than 12 months. The remaining term to maturity is the length of time
commencing on the date of payment for the financial instrument as prescribed in
Clause 3 Article 4 hereof and ending on the maturity date of that financial
instrument on which its principal and interest must be fully paid.
7. FBBs shall not be allowed to purchase convertible bonds.
8. Credit institutions/FBBs shall only carry out trading of
financial instruments issued by finance companies or finance lease companies
with organizations (including credit institutions/FBBs).”
·
Secondly, regulating on transaction
information.
Specifically, Article 3 Circular
No. 12/2021/TT-NHNN stipulates: “Article 4. Transaction information
The form of transactions in financial instruments must comply with
relevant laws. An agreement on trading of financial instrument shall,
inter alia, include the following contents:
1. Information about the seller and the buyer.
2. Name of the financial instrument; issuer; term, maturity date
and value determined according to face value of the financial instrument.
3. Date of payment for financial instrument.
4. Payment amount for financial instrument.
5. Rights and obligations of the seller and the buyer.”
v Name of legal document: Circular No. 14/2021/TT-NHNN issued on 07/09/2021 by the State Bank of Vietnam amendments to Circular no. 01/2020/TT-NHNN dated march 13, 2020 of the Governor of the State bank of Vietnam providing instructions for credit institutions and foreign branch banks (FBB) on debt rescheduling, exemption or reduction of interest and fees, retention of debt category to assist borrowers affected by Covid-19 pandemic (referred to as the “Circular No. 14/2021/TT-NHNN”).v Effective date: 07/09/2021.
Some contents should be noted:
·
Firstly, amending and supplementing on
debt rescheduling.
Specifically, Clause 1 Article 1
of Circular No. 14/2021/TT-NHNN stipulates: “Article 1. Amendments to
some Articles of Circular No. 01/2020/TT-NHNN
1. Amendments to Article 4:
“Article 4. Debt rescheduling
An outstanding debt, including the principal and/or interest (including
the debts regulated by the Government's Decree
No. 55/2015/ND-CP amended)) may be rescheduled by the credit
institution or foreign bank branch (FBB) if it fully satisfies the following
conditions:
1. The debt is a loan or finance lease that is granted before
01/8/2021;
2. The principal and/or interest occur during the period from
23/01/2020 to 30/6/2022;
3. The outstanding debt may be rescheduled in one of the following cases:
a) The outstanding debt is undue or has been overdue for not more than
10 days according to the concluded agreement, except the cases specified in
Point b, Point c, Point d of this Clause;
b) The outstanding debt belongs to a debt that occurs before 23/01/2020
and becomes overdue during the period from 23/01/2020 to 30/6/2020;
c) The outstanding debt belongs to a debt that occurs during the period
from 23/01/2020 to before 10/6/2020 and becomes overdue before 17/5/2021;
d) The outstanding debt belongs to a debt that occurs during the period
from 10/6/2020 to before 01/8/2021 and becomes overdue during the period from
17/7/2021 to before 07/9/2021.
4. The borrower is assessed by the credit institution or FBB as
incapable of paying the principal and/or interest on schedule under the
agreement due to decrease in revenue or income caused by Covid-19 pandemic.
5. The borrower applies for rescheduling of the debt and is assessed by
the credit institution or FBB as capable of fully paying the principal and/or
interest after the debt is rescheduled.
6. Credit institutions and FBBs shall not reschedule debts that violate
regulations of law.
7. The rescheduling period (including debt deferral) shall be
appropriate for the impacts of Covid-19 pandemic on the borrower and shall not
exceed 12 months from the day on which rescheduling is granted by the credit
institution/FBB, or from the original deadline for payment of the outstanding
debt.
8. Debt rescheduling shall be carried out until 30/6/2022.””
·
Secondly, amending and supplementing
on reduction and exemption of interest and/or fees.
Specifically, Clause 2 Article 1
of Circular No. 14/2021/TT-NHNN stipulates: “Article 1. Amendments to some Articles of
Circular No. 01/2020/TT-NHNN
...
2. Amendments to Article 5:
“Article 5. Reduction and
exemption of interest and/or fees
1. Credit institutions and FBBs shall, according to their own rules and
regulations, decide reduction and exemption of interest and/or outstanding
debts of the debts that arise before 01/8/2021from extend credit (except
purchases of corporate bonds) whose principal and/or interest are due during
the period from 23/01/2020 to 30/6/2022 but the borrowers are not capable of
fully paying the principal and/or interest by the deadline specified in the original
agreement due to decrease in revenue or income caused by Covid-19.
2. Reduction and exemption of interest and/or fees shall be carried out
until 30/6/2022.”
3. Amendments to Clause 2 Article 6 of Circular
No. 01/2020/TT-NHNN , which is already amended by Clause 4 Article 1
of Circular No. 03/2021/TT-NHNN):
“2. Credit institutions and FBBs may retain the categories of the debts
that occur during the period from 23/01/2020 to before 01/8/2021 and have been
categorized in accordance with regulations of the State bank of Vietnam (SBV)
regarding the outstanding debts that have been granted rescheduling, reduction
or exemption of interest and/or fees as prescribed in Article 4 and Article 5
of this Circular. To be specific:
a) Retain the categories of debts that are categorized on the latest
day before the first rescheduling of the outstanding debts mentioned in Point a
Clause 3 Article 4 of this Circular;
c) Retain the categories of debts that are categorized on the latest day before the outstanding debts mentioned in Point c and Point d Clause 3 Article 4 of this Circular are categorized as overdue debts;
c) Retain the categories of debts that are categorized on the latest day before the first reduction or exemption of interests on the outstanding debts mentioned in Article 5 of this Circular.””
